The Punjab National Bank (PNB) will honour claims by peer banks who issued credit to billionaire jeweller Nirav Modi and his uncle Mehul Choksi against guarantees given by PNB, but the payments come with riders, the Economic Times (ET) reported.

PNB, the second-biggest Indian state-run lender, uncovered in January the alleged fraud in which certain bank officials were suspected of colluding with Modi and Choksi to issue fraudulent letters of undertaking (LoUs) for their firms to raise loans from overseas branches of mostly Indian banks.

Both Modi and Choksi have denied wrongdoing, and so have two key accused PNB employees in the case that has been dubbed as India's largest ever bank fraud.

ET, citing sources, said PNB has agreed to honour claims due by end-March but has mandated that peer banks will have to pay PNB if investigative authorities prove that there was malafide intent on the part of these banks.

PNB did not immediately respond to requests for comment.

About Rs 60 billion ($924.14 million) is due to these banks by end of March, ET said.

State Bank of India and three other state-run banks, Union Bank of India, UCO Bank and Allahabad Bank, are among lenders who have extended credit based on the LoUs issued by PNB that were later found to be fraudulent.